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Slowdown in smartphones deals blow to Imagination

Imagination Technologies, the FTSE 250 business which designs graphic processor chips in Apple’s iPhone, today saw its shares crash 16% to a three-year low amid slowing smartphone growth and a slide in profits.

Licensing revenues — which come from clients who license Imagination’s chip designs for future projects — remained weak, although they picked up from the previous six months.

Chief executive Sir Hossein Yassaie played down slowing growth in sales of smartphones after the explosive change of the past five years.

“This market shifted from zero to a billion units in the past five years — that rate of growth has been pretty dramatic,” said Yassaie, whose firm claims to design around 50% of all graphic-processing units in the smartphone market, including for market-leader Samsung, pictured. “Now we’re going from one billion to two billion, the rate of growth will be slower.”

Yassaie added: “The other element of it is, the mobile market started in the developed world at the high end. Then it migrated to the low end. The high end is still growing but the mid-range and the low end is growing faster.”

Yassaie insisted Imagination was still “on track” as it expands beyond graphics with low-power chips and connected technology which can be used in household appliances and cars — dubbed the internet of things.

“We think these fluctations are more distractions relative to our overall plan and strategy,” said Yassaie, whose long-term aim is for Imagination to sell billions of units a year. It sold 620 million in the half-year.

Pre-tax profits sank to just £2.2 million in the six months to September against £10.5 million a year earlier. Revenues climbed 19% to £85.2 million.

Digital radio business Pure was loss-making.

Royalty revenues — the bulk of Imagination’s income — rose 44% to £56.2 million as customers continued to use Imagination’s existing designs.

But broker Peel Hunt flagged up that full-year royalties would not be as high as it expected.

Licensing of new designs fell to £14.4 million against £11.3 million a year earlier. Shares fell 39.1p to 209.9p.